Is Intel Destined for Greatness?

Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Intel (NASDAQ: INTC) fit the bill? Let's look at what its recent results tell us about its potential for future gains.

What we're looking for The graphs you're about to see tell Intel's story, and we'll be grading the quality of that story in several ways:

Growth: Are profits, margins, and free cash flow all increasing?

Valuation: Is share price growing in line with earnings per share?

Opportunities: Is return on equity increasing while debt to equity declines?

How we got here and where we're going Things don't look particularly good for Intel in its second assessment, as this chipmaker has lost four of the seven passing grades it earned last year, to fall to a rather disappointing three out of seven score. Weakening demand for PCs has may not have hurt Intel as much as it has many PC manufacturers, but it's nevertheless quite visible on Intel's results of late. Intel has also been raising a lot of debts for general corporate purposes and to repurchase shares, which has cost the normally frugal chipmaker a failing grade. Is the blue screen of death flashing for Intel, or can the company that puts the silicon in Silicon Valley turn its fortunes around in 2014? Let's see what the company has planned for the near future.

Intel has been pushing hard into low-power, low-cost mobile processors, with its latest Atom chipset (codenamed Bay Trail) set to hit the market in tablets and laptops any day now. Fool contributor Ashraf Eassa points out that Delland Lenovo will both run their latest tablets -- the Venue 8 Pro and the Miix 2, respectively -- with Bay Trail chips. The company is also on the verge of launching a new line of Android-only smartphone and tablet processors code-named Merrifield, which are integrated with a multi-mode LTE chip.

However, Intel's distant second place standing behind ARM Holdings and its largest fabless licensee Qualcomm (NASDAQ: QCOM) has been as difficult to surmount thus far as was Intel's lead in PCs in the first place. Intel's Clover-Trail dual-core x86 Atom chips have had little success penetrating the mature mobile space, and there's no indication yet that inclusion in a couple of latecomer tablets will be much of a game-changer. The Merrifield chipset, however, puts Intel square in Qualcomm's territory, as integrated wireless processing has long been the mobile leader's major advantage.

One of Intel's greatest strengths, however, is its unparalleled commitment to research and development. Its current trailing 12-month R&D spending is essentially as large as that of all other large dedicated directly competing chipmakers, combined. The company's bleeding-edge 14-nanometer Tri-Gate transistor is roughly two generations ahead of most peers, as most mobile designs are still primarily on 28-nanometer transistor widths. Intel's recent effort to find a place in the Internet of Everything with its Quark chipset is another source of long-term growth, as there are billions of devices that might be worth connecting in the next few years.

Putting the pieces together Today, Intel has few of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.

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Fool contributor Alex Planes owns shares of Intel. The Motley Fool recommends Amazon.com, Apple, Google, and Intel and owns shares of Amazon.com, Apple, Google, Intel, Microsoft, and Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Comments from our Foolish Readers

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I don't know about "great" stocks; I do know that Intel is coming back and rather quickly and that now is probably the time to get in on it, if one hadn't the luck or insight to do it right after their last and finally successful earnings report.